The Spanish economy is one of the most dependent on the German economy due to its industrial, commercial, tourist and investment relations
The recession in the German economy “is not good news for Spain”. The First Vice President of the Government, Nadia Calvinohas thus recognized that the worsening of prospects in Germany will also end up damaging those of Spain: “The European economy is highly integrated and Germany is one of our main markets,” Calviño told the media in Washington, where he is taking part in the autumn meeting of the International Monetary Fund (IMF). The German Government presented its new official forecasts on Wednesday, which foresee an economic recession for the German economy in 2023, with a decline of around 0.4% and high inflation of 7%. And Calviño recalled this Thursday the well-known aphorism that states that “When Germany sneezes, Europe gets a cold” thus underlining the contagious capacity of the european locomotive to the rest of the eurozone. “It’s a good metaphor for the current situation,” the vice president acknowledged.
In particular, the Spanish economy is one of the most intertwined with the German economy, due to the relationships that derive from the automobile industry, tourism and direct and portfolio investment, among other issues. The worsening of some European partners can subtract almost half a point from Spanish growth, according to the calculations of a study service that is finalizing its new macroeconomic table these days. Hence, the Spanish concern about the German “sneeze”.
The expectation of a recession in Germany will end up skewing growth in the entire euro zone downwards. In its September forecasts, the ECB lowered its GDP growth forecast for the eurozone to 0.9% for 2023, with the addition that in an adverse scenario there could be a 0.9% drop in the production of the euro economy. The Director General of Economy of the European Central Bank (ECB), Oscar Arcein an informative meeting organized by the Association of Economic Information Journalists (APIE) admitted this Thursday that “the autumn indicators give the feeling that the slowdown in the German economy is being somewhat more intense than we expected in September” and that this will weigh on the new forecasts that the body must publish in December.
the automobile industry
Spain is the second largest car producer in the European Union -behind Germany- and its automobile industry is highly dependent on Germany. The value chain of the Spanish car industry requires the components that come from the headquarters in Germany of the brands with factories in Spain, such as Volkswagen, Audi or Seat. At the same time, the powerful Spanish components industry it has a good part of its market in German industry. According to estimates by the Bank of Spain, 48% of the added value of the Spanish automobile industry originates within the country. The remaining 52% depends on supplies from abroad and, in particular, 10% depends on Germany. Consequently, any stoppage in German factories derived from possible restrictions in the supply of energy will have immediate consequences on industrial production in Spain in this sector.
trade in intermediate goods
Germany is the second export customer Spanish, behind France. On the contrary, Germany is the main foreign supplier of goods for Spain. In 2021, 10% of Spanish exports went to Germany (for a total of 32,399.7 million); meanwhile, 11.2% of the imports Spanish were supplied by the German country (38,276 million). The balance of payments is favorable to Germany for a total of 5,876.7 million in 2021.
Above all, Spain exports cars and motorcycles to Germany (5,491 million in 2021) but, above all, intermediate products for industry such as capital goods, chemical products, transport material, automobile components, industrial machinery, semi-manufactured products, iron and steel. Any blackout in the industry can not only depress the sales of the 14,277 Spanish exporters that trade with Germany -according to ICEX data-, it can also cut off the supplies that Spanish factories need, since purchases from the German country are also mostly goods intermediates for the Spanish factories.
Third issuing market of tourists
Germany is the third country of origin of foreign tourists who visit Spain. Until August, a total of 6.5 million German tourists have visited Spain, a record that is only behind the United Kingdom (10.19 million) and France (6.99 million). Germany is the first country that sends tourists to the Balearic Islands and the second to the Canary Islands. Consequently, these are the two autonomous communities that would suffer the most from a possible cut in tourist spending by the Germans. Until August, German tourists have left a total of 7,741 million in Spain, 13% of the total income of foreign visitors (58,895 million).
Fourth foreign investor
Germany is the fourth foreign investor in Spain (with a capital stock of 50,168 million euros in 2020, according to ICEX data) and the eleventh recipient of Spanish investment (with a stock of 14,651 million). The data up to June 2022 reveal that the flow of investments persists; Spanish investment in Germany amounted to 504 million euros in the first half and German investment in Spain, 541 million in that period. The economic slowdown may end up slowing down or delaying investment projects